A COMPANY owned by the Reserve Bank of Australia (RBA) reportedly tried to strike an illegal business deal with Iraqi dictator Saddam Hussein.

The operation was called off six months later after Australian diplomats uncovered the secret dealings with the brutal regime, the ABC and Fairfax Media report.

Secret files show officials from the RBA's Note Printing Australia (NPA) went to Iraq at the height of UN sanctions to discuss a contract to turn the country's paper currency into polymer bank notes.

During the 1998 trip, which was codenamed Delta Project, they met a middleman - Hussein's brother-in-law and bodyguard Arshad Yassin.

Yassin had confirmed that Hussein had seen samples of the bank notes and was keen to adopt them.

Hussein's office had allocated $US65 million ($69.8 million) for the project, RBA officials reported in the document.

David Chaikin, a Sydney University legal expert, told Fairfax Media the confidential files contained a "very strong prima facie" case that officials involved in the trip had breached a UN sanction that banned Australians from promoting the sale or supply of goods to Iraq.